PAWZ: A Play on Pets

01/06/2021 5:45 am EST

Focus: ETFS

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

As reader of his Internet Wealth Builder newsletters asks investment expert Gordon Pape, for his opinion on ProShares Pet Care ETF (PAWZ), which the reader considers a reasonable way to play the pet care market.

ProShares Pet Care is a U.S.-based ETF on the pet care industry. This is an international fund (although heavily concentrated in the U.S.) that invests in a range of companies that stand to potentially benefit from the proliferation of pet ownership, and the emerging trends affecting how we care for our pets.

It’s a new fund, launched in November 2018. So far, it has performed very well, with a one-year gain of almost 50% as of the end of November.

But these have been unusual times, to say the least. There have been many media reports of people buying pets to combat pandemic-induced loneliness, which in turn has increased demand for pet care supplies and services.

This is a growing industry – there are projections that pet care businesses could reach US$270 billion by 2025. But it would be unrealistic to expect the fund to continue to deliver returns of this magnitude.

Most of the top holdings will be unfamiliar to investors. For example, Idexx Laboratories (IDXX), which produces a range of animal healthcare products, makes up 10.1% of the ETF’s total assets. Chewy Inc. (CHWY), which makes pet food and a number of other products, is close behind at 9.96%.

In fact, the top five holdings account for more than 47% of the fund’s assets, so this is a heavily concentrated portfolio. If even one of those major companies slips, it will have a disproportionate impact on the performance of the ETF.

For that reason, I would rate it as higher risk. If you decide to invest, remember this is a niche market. Don’t commit a large proportion of your resources.

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